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What is Mining?
Cryptocurrency mining is the action of adding transactional records to that cryptocurrency’s public ledger. This ledger of previous transactions is referred to as the blockchain. The blockchain’s purpose is to conform to the entire network that transactions have taken place.
Cryptocurrency nodes can use the blockchain to decipher when a legitimate cryptocurrency transaction is carried out and when someone is attempting to spend coins that have already been spent.
The process of cryptocurrency mining serves two main purposes. Firstly, it exists to confirm transactions for the network when there is enough power on a block and secondly, the purpose of cryptocurrency mining is to gain new cryptocurrency coins as a part of the blockchain network’s reward process.
Proof-of-work standards are used to ensure that the newly created blocks were both costly and time-consuming during their creation. If this proof-of-work is not valid, then the block will not be verified. The proof-of-work that is presented, is then validated by the nodes on the blockchain network, This process occurs every time a new block has been created. An example of a proof-of-work function would be bitcoin’s hashcash function.
The main goal behind cryptocurrency mining is to allow cryptocurrency nodes to reach a secured, tamper-proof agreement. Mining is also generally, the method of distributing new cryptocurrency coins into the blockchain platform. Cryptocurrency miners are then paid for any transaction fees they may have, along with an amount of newly created coins.
This serves two different purposes. First, it allows for the decentralized distribution of coins and it also incentivizes people to work on the platform and provide their skills.
Mining a bitcoin block is difficult, for example, because the SHA-256 hash of a mined block’s header has to be either lower than or equal to the target. Otherwise, the block will not be accepted into the bitcoin network.
The way in which this works can be simplified further. The hash of the block that someone is trying to mine, has to start with a fixed number of zeroes. The likelihood of calculating a hash with multiple zeroes is incredibly low. Due to this, multiple attempts must be made to validate the block.
Using bitcoin as an example again, there are different levels of difficulty when mining blocks. The bitcoin mining network difficulty is the range of how difficult it may be to validate a new block, compared to the easiest it could potentially be. This figure is then recalculated cyclically every time 2016 blocks have been validated. The new value would be calculated based on if everyone was mining at the same difficulty and had the 2016 blocks had been completed in exactly two weeks. The result of this would give the new value for the bitcoin mining network difficulty.
Cryptocurrency mining is costly and very difficult by intention. These levels of difficulty were implemented to ensure that the numbers of blocks being mined each day, remained at a steady level.
As more people begin to mine cryptocurrencies on the blockchain network, the rate of block creation will then start to rise. As this happens, the blockchain will respond by increasing the difficulty level so that the rate of block creation is slowed again.